Projected pension deficit expansion over the forthcoming years, as per the latest findings from COR report.
Revamped Article:
Sinkhole in 2024, the Pension System Faces Deficit: Survey by Council of Pension Orientation (COR)
In a grim revelation, the COR has announced a deficit of 1.7 billion euros (-0.1% of GDP) in the pension system for 2024. This disheartening news comes from their annual report, which we had the opportunity to review on June 6.
If things continue as-is, the COR predicts that the pension system would still face financing demands throughout the projection period. The deficit is expected to reach -0.2% of GDP in 2030, equating to approximately 6.6 billion euros. By 2070, this deficit could balloon to -1.4% of GDP.
Pensions accounted for over 400 billion euros in the budget for 2024. Two-thirds of this were funded via contributions, while one-third came from transfers and deductions, roughly translating to 14% of the country's GDP.
Pension System Balancing Levers
In their report, the COR explores various levers that could rectify the troubled pension system. They assert that these levers differ significantly in their macroeconomic effects. The available options are:
- Moderating net pension increases:
- Enhancing employee pension contributions:
- Boosting employer pension contributions:
- Delaying retirement age:
The COR describes the first three options as "recessive," implying they might have negative effects on the economy. On the other hand, delaying the retirement age is deemed "expansive," as it could increase the workforce, employment, and GDP, thereby benefiting the country's economy.
The report drops as employers and trade unions are locked in a final round of negotiations, with the session wrapped up on June 17. The ongoing discussions revolve around potential modifications to Emmanuel Macron's 2023 reform proposal. While negotiations are already tense, particularly between MEDEF and CFDT, the COR's report might further fuel tensions. Employers remain steadfast on the retirement age of 64, and the report reinforces this position by suggesting that a retirement age of 63 would cost an additional 13 billion euros annually.
Enrichment Insights:
Potential Solutions for Balancing the Pension System:
- Use of Pension Surpluses for Enhanced Benefits Without Plan Termination: This strategy could ensure retirement security while promoting labor market efficiency.
- Ensuring Adequate and Actuarially Based Contributions: Implementing actuarially-sound pension funding policies maintains the sustainability of the pension plan.
- Periodic Actuarial Reviews and Adjustments: Regular check-ups assess the long-term sustainability of the pension plan and enable adjustments to maintain durability.
Impact on GDP, Employment, and Tax Revenue:
- A well-balanced pension system can bolster consumer confidence, support aggregate demand, and maintain GDP stability.
- Maintaining pension plan solvency could bolster job attractiveness and workforce stability.
- Flexibility in using pension surpluses could improve overall compensation packages, potentially boosting productivity and employment.
- Adequate, consistent employer contributions tied to payroll aids in maintaining steady tax revenue streams aligned with economic activity.
- In the face of the predicted deficit in the pension system, it may be necessary for businesses and politicians to consider solutions such as moderating net pension increases, enhancing employee and employer contributions, or delaying the retirement age to ensure the system's financial stability and avoid potential negative effects on the economy.
- As the pension system faces continued financing demands, it is essential to explore strategies like using pension surpluses for enhanced benefits, ensuring adequate and actuarially based contributions, and conducting periodic actuarial reviews and adjustments to maintain the long-term sustainability of the system and benefit GDP, employment, and tax revenue.
